WTO-China Steel, Facebook-SEC, Gupta Verdict: Compliance
China broke global commerce rules by imposing anti-dumping and anti-subsidy duties on more than $200 million of U.S. steel products, the World Trade Organization said in a ruling June 15.
Judges agreed with the U.S. that China failed to prove that imports of grain-oriented flat-rolled electrical steel, produced by companies such as West Chester, Ohio-based AK Steel Holding Corp. (AKS) and Pittsburgh-based ATI Allegheny Ludlum Corp. had caused injury to Chinese rivals. The panel also found that China began its anti-subsidy proceedings without adequate evidence showing U.S. companies were receiving illegal government aid.
The Chinese mission to the WTO said in a statement from Geneva that judges backed China’s “key claims” and ruled in favor of its use of “facts available” in calculating “subsidy rates, the disclosure of information on the dumping margins and the disclosure of information on the subsidy benefit relating to the government purchase of goods.”
The U.S. argued that China didn’t follow WTO procedures by failing to disclose the facts underlying its legal conclusions and not explaining its calculations.
Both governments have 60 days to appeal the panel’s findings. China said it “will conduct further evaluation and reserves the right to appeal.”
Basel Group Seeks Deal on Nationally Systemic Bank Controls
Global financial regulators, after reaching a consensus last year on tougher capital rules to govern banks that would roil the world economy if they collapsed, will try to hammer out a deal this week on controls for lenders with the potential to bring down national economies.
The Basel Committee on Banking Supervision plans to publish draft rules for so-called systemic lenders that aren’t covered by last year’s plans requiring global banks deemed too-big-to-fail to hold additional capital of as much as 2.5 percent of their risk-weighted assets, according to two people with knowledge of the discussions.
To reach a deal, nations in the group will need to bridge differences over whether the planned rules for these so-called domestically systemic banks should also apply to subsidiaries of the global lenders targeted last year, said one of the people, who declined to be named because the talks are private. The split centers on whether local regulators should be free to impose stricter capital rules on these units than those the parent bank must follow, one of the people said.
The euro area’s efforts to contain its debt crisis have been frustrated by weakness on some banks’ balance sheets, including those of smaller to mid-size lenders.
The Financial Stability Board, which brings together regulators, finance ministry officials and central bankers from the Group of 20 nations, published a provisional list of 29 globally important banks that may face these surcharges, including Deutsche Bank AG, BNP Paribas SA (BNP) and Goldman Sachs Group Inc. (GS) It also said that these globally important lenders should be subject to tougher supervision.
While regulators don’t intend to publish a list of the nationally important banks, the plans will include guidance for supervisors on identifying and regulating them. Regulators will discuss the plans at a two-day meeting starting tomorrow in Stockholm, the people said. Should the Basel group agree on the draft rules, they would then seek public comment.
CSRC Encourages Selling of Fixed-Income Products, Journal Says
The China Securities Regulatory Commission is encouraging fund companies to issue more fixed-income products, the China Securities Journal reports, citing an unidentified person.
The regulator hopes fixed-income products will rise to 50 percent of the total assets of funds from about 25 percent now, the person was cited as saying.
Israeli Panel Approves Easing of Mobile Phone Import Rules
Israel’s parliamentary economics committee approved the easing of rules for mobile phone imports, a move which may increase competition in the market, the panel said in an e-mailed statement yesterday.
U.S. Regulator Said to Exempt Small Branches From Swaps Rules
Some overseas branches of U.S. banks such as Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) may win exemptions from Dodd-Frank Act collateral and clearing requirements, according to two people briefed on the matter.
The Commodity Futures Trading Commission on June 21 may propose letting non-U.S. branches with less than 5 percent of a bank’s aggregate notional swap business be free of some requirements, according to the people, who requested anonymity because the guidelines haven’t been proposed. The banks would still face reporting requirements and need to show that risk from the overseas trades isn’t brought back to the U.S., one of the people said.
The Dodd-Frank law is designed to increase transparency by having swaps cleared on public exchanges. CFTC Chairman Gary Gensler has said JPMorgan’s loss of at least $2 billion on derivatives trades conducted in London underscores the need for U.S. regulators to ensure that banks’ foreign branches and subsidiaries are covered by the new rules.
Steve Adamske, CFTC spokesman, declined to comment on the branch threshold.
SEC Pressed Facebook for Details on Mobile Revenue Before IPO
The U.S. Securities and Exchange Commission pressed Facebook Inc. (FB) executives to explain in more detail how a user shift to mobile devices could impact the company’s profits, according to documents made public June 15.
“Assuming that the trend toward mobile continues and your mobile monetization efforts are unsuccessful, ensure that your disclosure fully addresses the potential consequences to your revenue and financial results rather than just stating that they ’may be negatively affected,’” the agency wrote to Facebook on Feb. 28.
Facebook shares have fallen about 24 percent since the stock began trading at $38 on May 18 in part because of concern about the company’s mobile strategy.
Facebook amended its IPO filing on May 9, about a week before its $16 billion sale, to say that its revenue may be negatively affected by users accessing the site on mobile devices rather than personal computers.
Separately, Facebook Inc. told regulators ahead of its initial public offering that the midpoint of its proposed price range wasn’t “meaningfully different” from its $30.89 per-share fair value estimates.
The SEC also sought details on fair value of equity part of Instagram purchase.
Facebook correspondence with the SEC was released June 15.
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Special Section: Gupta Verdict
Naftalis Says He’ll Fight for Gupta’s ‘Innocence’
Gary Naftalis, attorney for Rajat Gupta, talked with reporters about the June 15 verdict in Gupta’s trial on insider trading charges.
Gupta was found guilty of conspiracy and three counts of securities fraud. He was acquitted of two other securities fraud counts.
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Gupta Convicted of Insider Trading for Tipping Rajaratnam
Rajat Gupta, who reached the pinnacle of corporate America as managing partner of McKinsey & Co. and as a director at Goldman Sachs Group Inc. and Procter & Gamble Co. (PG), was convicted by a federal jury of leaking inside information to hedge-fund manager Raj Rajaratnam.
Gupta, 63, was found guilty of securities fraud and conspiracy by a federal jury in Manhattan June 15 in its second day of deliberations. Securities fraud carries a maximum prison sentence of 20 years, and conspiracy carries a five-year maximum. Gupta will remain free on bail until his sentencing on Oct. 18.
Gupta showed no reaction while the verdict was read. The outcome is a victory for the office of Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation in their assault on insider trading, which used tools normally employed against organized crime, including phone taps and informants.
Gupta is the most prominent of those convicted at trial or to plead guilty since the nationwide crackdown began in October 2009. To date, the U.S. has brought cases against 66 traders and their sources from Wall Street to Silicon Valley. No one has won an acquittal; six cases are pending.
Besides his tenure at Goldman Sachs and McKinsey, which he ran from 1994 to 2003, the Kolkata-born Gupta served on the boards of the Rockefeller Foundation and the Bill & Melinda Gates Foundation, and raised millions of dollars for education and health-care programs.
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In Gupta, Jurors Saw the American Dream and Convicted Anyway
After delivering a guilty verdict in the insider-trading trial of Rajat Gupta, jurors talked about their experience.
Jury foreman Richard Lepkowski, 51, didn’t want to convict Gupta of insider trading. To him and other jurors, Gupta had lived a “story-book life” and “the American dream,” he said. In the end, though, the case was just too strong, Lepkowski said.
Jurors weighed the evidence for 9 1/2 hours over parts of two days before convicting Gupta of one count of conspiracy and three counts of securities fraud, the maximum sentence for which is 20 years in prison. They acquitted him of two counts of securities fraud.
When the 12 jurors returned to the courtroom to deliver their verdict at 11:38 a.m., two were in tears. They said they wrestled with many issues before filing into the courtroom for the last time.
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Gupta’s Judge Ignored U.S. Sentence Requests in Insider Cases
The judge who will sentence Gupta for insider trading has a track record of cutting the government’s recommended punishment in some cases by half or more.
U.S. District Judge Jed Rakoff in Manhattan is to sentence Gupta, once a managing partner of McKinsey & Co., for tipping Galleon Group LLC co-founder Raj Rajaratnam. In September, the judge sentenced Winifred Jiau, a Stanford University-educated consultant convicted of corrupting friends and selling confidential information, to four years in prison, less than half of the maximum 10 years sought by federal prosecutors.
The Jiau sentence came as a surprise after Rakoff initially appeared to agree with the government’s recommendation last fall.
Rakoff’s ultimate sentence for Jiau was below the term of 78 to 97 months suggested by federal guidelines. Others convicted in the government’s insider trading probe, such as former Primary Global Research LLC executive James Fleishman, received a 30-month term instead of as many as 108 months sought by the U.S. Former SAC Capital Advisors LP manager Donald Longueuil also received a 30-month term instead of the 46 to 57 months sought by the prosecution; and Rakoff sentenced Manosha Karunatilaka, a former Taiwan Semiconductor Manufacturing Co. manager, to 18 months in prison while the U.S. sought a term of 37 to 46 months.
In a 2006 opinion, which has been cited by defense attorneys seeking leniency for clients, Rakoff called the prosecutor’s request for an 85-year sentence in an accounting fraud case “patently unreasonable” and “absurd.”
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Ex-Taylor Bean Official Gets Five Years in Prison, U.S. Says
Taylor, Bean & Whitaker Mortgage Corp.’s former finance chief was sentenced to five years prison for helping his boss, Lee Farkas, commit what prosecutors say was one of the largest bank frauds in U.S. history, according to U.S. Attorney Neil MacBride.
Delton de Armas, 41, was sentenced June 15 by U.S. District Judge Leonie Brinkema in Alexandria, Virginia, after pleading guilty on March 20 to one count of conspiracy to commit bank and wire fraud and one count of making false statements.
De Armas admitted he participated in a scheme that contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup, once among the nation’s 25 biggest depository banks.
Farkas, the ex-chairman of Taylor Bean, is serving a 30-year sentence. He was convicted in April 2011 of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets. The case is U.S. v. Armas, 12-00096, U.S. District Court, Eastern District of Virginia (Alexandria).
Deutsche Boerse Asks EU Court to Cancel NYSE-Euronext Merger Ban
Deutsche Boerse AG asked a European Union court to overturn a ban on its planned merger with NYSE Euronext, saying regulators made errors when reviewing the deal that would have created the world’s biggest exchange.
Regulators “failed to properly assess” offers made by the companies to eliminate antitrust concerns and wrongly ruled that the two exchanges’ rivalry limits fees for customers, Deutsche Boerse argued in a filing at the EU’s General Court in Luxembourg published in the EU’s Official Journal on June 16.
The European Commission blocked the $9.5 billion deal in February because it would have led to a “near monopoly” in European exchange-traded derivatives. The acquisition of NYSE Euronext would have put more than 90 percent of Europe’s exchange-traded derivatives market and about 30 percent of stock trading in the hands of one company.
“The commission inaccurately accepted only some of the efficiencies as verifiable, merger-specific and likely to benefit customers, and incorrectly claimed that they were insufficient to counteract the competitive effects of the merger,” Deutsche Boerse said in the filing.
The EU tribunal can cancel regulators’ decision or ask them to reexamine the deal if it backs any of the Frankfurt-based exchange’s claims.
Comings and Goings
SEC Names Thomas Butler as Head of New Credit-Ratings Office
The U.S. Securities and Exchange Commission named Thomas Butler, a former Morgan Stanley managing director, to head a new credit-ratings office created as part of the Dodd-Frank financial regulatory overhaul.
Ratings-firm examinations required by the 2010 Dodd-Frank act had been done by the SEC’s Office of Compliance Inspections and Examinations before the creation of the new office, the regulator said in the statement.
Butler, who starts June 18, will run a staff of about 25 lawyers, accountants and examiners responsible for monitoring the nine registered nationally recognized statistical rating organizations, the SEC said in a statement June 15. The office will issue an annual report on each of the ratings firms, which are led by Moody’s Investors Service and Standard & Poor’s.
U.S. Health Insurance Regulator Larsen to Leave Government
Steve Larsen, the government administrator directing enactment of U.S. insurance regulations created by the 2010 health-care overhaul, said he is leaving to take a job with UnitedHealth Group Inc. (UNH)
Larsen will resign as head of the Center for Consumer Information and Insurance Oversight in July to become an executive vice president at UnitedHealth’s Optum unit, he said in an e-mail. Larsen worked for Amerigroup Corp., a Virginia Beach, Virginia-based insurer specializing in Medicaid plans, before joining the Department of Health and Human Services in 2010 and had served as Maryland’s insurance commissioner.
Larsen’s departure was announced Marilyn Tavenner, the acting administrator for the Centers for Medicare and Medicaid Services. He will be replaced temporarily by Mike Hash, an adviser to Health and Human Services Secretary Kathleen Sebelius, she said.
To contact the editor responsible for this report: Michael Hytha at email@example.com.